Good day, and welcome to the Accelerate Diagnostics First Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Laura Pierson of Accelerate Diagnostics. Please go ahead..

Before we begin, it is important to share that information presented during this call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

Forward-looking statements include projections, statements about our future and those that are not historical facts. All forward-looking statements that are made during this conference call are subject to risks, uncertainties and other factors that could cause our actual results to differ materially.

These are discussed in greater detail in our annual report on Form 10-K for the year ended December 31st, 2020, and other reports we file with the SEC. It is my pleasure to now introduce the Company's President and CEO, Jack Phillips..

Thank you, Laura. Good afternoon, everyone and welcome to our first quarter 2021 earnings call. On today's call, we will review our first quarter financial results, discuss the impacts of the pandemic on the business, and detailed progress made against 2021 areas of focus through March.

In the first quarter, we grew our global revenue installed base, consumable revenues and funnel of prospective customers. Pandemic related effects in January and February impacted the magnitude of these gains in the quarter. We are committed to establishing rapid susceptibility testing as the standard of care.

And we expect to progress this commitment in 2021 through increasing adoption of our current integrated ID/AST solution, launching product extensions to open new market segments and position ourselves for market expansion through advancing Pheno 2.0 development and access to new geographies.

Before providing additional details on our progress against these priorities in the quarter, I would like to hand it over to Steve to review our first quarter financial results.

Steve?.

Thank you, Jack and good afternoon. Net sales were $2.5 million in the first quarter. This compares to $2.3 million for the same period in 2020. The year-over-year sales increase was driven by 16% growth in consumable revenue, which was partially offset by lower capital instrument revenue in the current quarter.

Existing customer utilization was low in January and February due to the surge in pandemic driven hospitalizations. Utilization improved in March, our highest consumable sales month in the company's history. Cost of goods sold were $1.6 million in the first quarter, resulting in gross margin of 36%.

This compares to cost of goods sold of $1.3 million or gross margin of 45% during the same period in 2020. The decline in gross margins resulted from ongoing pandemic related impacts to manufacturing costs, and other factors.

Selling, general and administrative expenses excluding non-cash stock-based compensation expense for the quarter were $8 million compared to $9.9 million from the same period in the prior year. This decrease was the result of ongoing benefits from cost cutting efforts that we put in place in 2020.

Non-cash stock-based compensation expense in R&D was $6 million and $3 million in the first quarters of 2021 and 2020 respectively. Research and development costs excluding non-cash stock-based compensation expense for the quarter were $4.1 million, compared to $4.7 million for the same period in the prior year.

This decrease was a result of improved internal efficiencies and lower external study-related costs. Non-cash stock-based compensation expense in SG&A was $2.7 million and $1.1 million in the first quarters of 2021 and 2020 respectively. Our net loss was $15.4 million, excluding non-cash stock-based compensation expense.

Our GAAP net loss was $24.2 million for the first quarter, resulting in a net loss per share of $0.41. Net cash used was $12.3 million for the quarter, excluding cash flows from financing. The company ended the quarter with cash and investments of $66.7 million.

During the quarter, we closed on the first of three equal tranches of insider financing, transaction that we announced in December contributing $10.7 million. The second tranche closed in April, and the remaining tranche will close in June. I will now hand it back to Jack to review our first quarter results and 2021 priorities in greater detail.

Jack?.

Thanks, Steve. Our 2021 priorities are to increase adoption of our current integrated ID AST solution, launch Pheno AST and PhenoPrep and advanced Pheno 2.0 and Chinese registration. Our current integrated identification and susceptibility solution is delivering broad clinical and economic benefits to a growing base of enthusiastic customers.

However, our rate of penetration has been insufficient and slowed by the pandemic. Increasing this installed base will require improved hospital access and a shift in hospital priorities beyond COVID-19. 2021 began much the same way to 2020 as it. A significant degree of hospitals focus remained on COVID patient testing and treatment.

Physical access to and the intention of key hospital stakeholders was constrained, impacting our ability to progress prospective customers through the sales process. Accordingly, few new contracts were signed globally in the first quarter.

Additionally, certain customers who had already signed contracts delayed or discontinued progress on implementing the system. Despite this headwind, we brought 12 instruments clinically live in the quarter. These additions brought our US revenue generating install base to 274 with another 111 instruments pending go-live.

In EMEA, our new geographical focus strategy delivered 10 clinically live instruments across five new customer sites.

Since March, as vaccination rates in increased and hospitalizations declined in most of the US and parts of Europe, we have seen a steady increase in customer engagement with increased go-live activity and notable increase in securing important customer meetings both virtually and face-to-face, which is an important precursor to winning new business.

Antimicrobial resistance is always evolving, and we believe it's important to continue to enhance our integrated ID AST product offering. The first wave of these product enhancements, which aims to improve the performance and expand Pheno AST menu for bloodstream infections, is rolling out now.

Through the end of the first quarter, we had successfully upgraded about 30% of our customer base.

Additionally, we progress a series of enhancements including new drug menu, updates to algorithms to address evolving resistance patterns, methods to reduce site-to-site variability and reportability, and finally, eco-friendly packaging to improve the shipping and storage of our test kits.

Lastly, we continue to build our body of clinical evidence and refine our strategy for using this data to win new business. Our growing base of enthusiastic customers continues to publish important outcomes data. One such customer is Allegheny who last month published findings from their first year of using Pheno for patient decision making.

They studied a use case for Pheno, that hasn't been a focus of the nearly 100 studies accumulated to-date. It's the ability to drive early discharge for less serious patients, not only did length of stay decrease by a statistically significant three days for this emergency department cohort.

But they observed no change in readmission rate, nor adverse health effects from these early discharges. While customer driven publications like these continue. We made considerable progress in our multi-site registry study this quarter.

This study has enrolled nearly 1,000 patients across multiple clinically live customers to evaluate new clinical outcomes including 30 day mortality rates and reductions in the rate of Acute Kidney Injury or AKI. The Case for making rapid susceptibility testing standard of care continues to strengthen with each new customer and study conducted.

Our secondary focus for 2021 is opening new market segments through the launch of Pheno test AST configuration and our PhenoPrep System for MALDI-TOF identification.

These product extensions complement the current integrated ID/AST offering by providing an avenue for customers to adopt rapid susceptibility testing on Pheno, regardless of existing workflow or prior investments in identification testing.

Pheno AST configuration is a new configuration of our existing ID/AST consumable, which runs already on the current Pheno platform.

The AST configured test kit accepts an identification test result, from an existing system, loads the appropriate antibiotic panel and delivers rapid AST results in about seven hours, day sooner than the typical lab workflows. PhenoPrep is a new platform which automates the front-end steps to deliver rapid MALDI-TOF identification results.

MALDI is the leading method for obtaining an identification result in the U.S. and EMEA and our Preparation Technology delivers a substantial improvement in time to resolve and workflow benefits. Initially, PhenoPrep will launch to be used with existing MALDI Systems.

In the future, PhenoPrep could be optimized for use with our own MALDI device, through our exclusive collaboration agreement with the Ascend diagnostics. In addition to these product enhancements and extensions, this year we are also working on several programs to expand our available market.

These programs fall under two general areas, targeted geographic expansion and importantly, our multi-sample capable next generation platform Pheno 2.0. With our near term strategy set in restructuring complete the EMEA, our focused on geographic expansion is Asia Pacific.

In particular, China is a highly promising market with a significant substance challenge, a large population and a government that is focused on healthcare investment. We continue to progress our clinical trial and regulatory activities to gain access in this important market.

The continuation of our market expansion strategy is the development and launch of our next generation rapid susceptibility system, the Pheno 2.0. This system incorporates a decade of susceptibility market and technology learnings into its design.

Based on continuing prototype testing, and ongoing progress, we are increasingly confident that the system will deliver fast and accurate results at a fraction of the size and cost of the current system. This will allow us to launch Pheno 2.0.

in multiple configurations across different size hospitals and across various high higher volume sample types. In summary, our first quarter financial results were as expected and progress against key priorities put us on pace to achieve our goals for the year.

We are cautiously optimistic that the market conditions will continue to improve globally through 2021 and healthcare spend will increase for non-COVID infectious disease diagnostics.

We believe that antimicrobial resistance and sepsis will be among these high priority areas of avoidable healthcare costs that are poised to worsen post pandemic, a growing body of evidence, increasing base of enthusiastic customers and improving execution against our strategy, positions us to lead in making rapid susceptibility testing standard of care.

I would now be happy to answer questions from our analysts. Should others on the call have questions not addressed, we would welcome you to send these questions or request a follow on meeting to investors@axdx.com..

Our first question comes from Andrew Brackmann with William Blair. Please go ahead..

Hi guys. Good afternoon. Thanks for taking the question. Jack, maybe a big picture, one for you. You've now sort of been in that CEO chair for about 15 months.

So I guess outside of the pandemic, can you just sort of talk broadly sort of about your level of competence in the business, the restructuring that you guys have gone through and just how it pitches in now versus when you initially came in just sort of that level of confidence. Thanks..

Hi, Andrew. Great, thanks for the question. I greatly appreciate it. Certainly in the past year, a lots changed with the pandemic and all, but really as we think about the business, we're extremely confident about where we're at.

Prior to the pandemic, we've been very clear about our new strategy and direction for the company, which included many things from the standpoint of from a tactical standpoint, it was around improving the commercialization of our sales force and utilizing data, return on investment portfolios to justify clinical outcomes for our customers.

We also totally retooled our go live process. And we talked a lot about that that's paying great dividends for us, as we've demonstrated over the past couple quarters.

And then also more on a bigger picture strategic standpoint, we've been very clear about how we shifted the direction to our core business more so with the work that we're doing on Pheno AST configuration on PhenoPrep to further drive rapid adoption of MALDI identification in the market, where we believe that's a real big opportunity for us and for our customers.

And then also continue to advance our portfolio for Pheno 2.0. So all in all, again, our body of evidence continues to grow tremendously.

We've had a significant number of new papers over the past quarter that have come out from the likes of Allegheny general, Albany Medical Centre, our own registry of five unique health institutions, all demonstrating the clinical value and outcomes of Pheno and the financial impact on institutions.

So overall, there's just a lot of tremendously good work going on at Accelerate. We're making good progress. Yes, we've been hampered by the past year, the pandemic.

We're very optimistic about what we're seeing now today with regard to new access to hospitals granted, many as we know, many states and institutions are still in lockdown mode, many of those in the Northern part of the US, but the – the institutions and cities and areas where we are getting access, the story of Pheno, and the solutions that we provide for rapid ID/AST, are resonating quite well.

And we're optimistic about the future as we move forward with our strategy and the market continues to open up..

Perfect. Thanks for that. I guess that sort of leads me into my next question here. Obviously, aside from the pandemic, as you just mentioned, you've done a lot to sort of right-size the business and get moving in all of that same direction.

So I guess, as we think about sort of the outlook from here and recognizing 2021, still going to be a little bit hampered by the pandemic, is it sort of reasonable to think that 2022 is the right year where all this sort of comes together and you start to see that inflection and growth?.

Yeah, Andrew. So yeah, we've been very clear that. And we all know that we're not – we're not past the pandemic yet. And access is still limited, like I said, but we are getting more access, and as we get towards the middle part of the year and the back half of the year, we know we're quite optimistic on 2021 still, very much so.

I mean, we've got to see good penetration and opportunities growing go-lives are going well. The other – the other items that are happening here this year is we're still looking at launching Pheno AST configuration around mid year. And we're looking at launching PhenoPrep around the end of next – at the end of – at the end of the year.

And so you know we're working hard on launch preparation for those. The sales force is already out positioning those products that are very important to certain segments of the market. And, and then to get to your kind of your point, which is 2022.

Yeah, I mean, we are very, very confident in the trajectory of the business in 2022, but we're still extremely focused today on where we're at today in 2021, and continuing to deliver results in 2021.

Andrew, did you have any other questions at this time?.

Not at this time. So this concludes today's call. Thank you for attending today's presentation. You may now disconnect..